political economy Political economy is the study of how economic systems (e.g. markets and national economies) and political systems (e.g. law, institutions, government) are linked. Widely studied phenomena within the discipline are systems such as labour ...

and

international relations International relations (IR), sometimes referred to as international studies and international affairs, is the scientific study of interactions between sovereign states. In a broader sense, it concerns all activities between states—such a ...

, conditionality is the use of conditions attached to the provision of benefits such as a

loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that ...

debt relief Debt relief or debt cancellation is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations. From antiquity through the 19th century, it refers to domestic debts, in particu ...

or bilateral aid. These conditions are typically imposed by international financial institutions or regional organizations and are intended to improve economic conditions within the recipient country.

International financial institutions

Conditionality is typically employed by the

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...

, the

World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...

or a donor country with respect to loans, debt relief and financial aid. Conditionalities may involve relatively uncontroversial requirements to enhance

aid effectiveness Aid effectiveness is the degree of success or failure of international aid (development aid or humanitarian aid). Concern with aid effectiveness might be at a high level of generality (whether aid on average fulfils the main functions that aid is ...

, such as anti- corruption measures, but they may involve highly controversial ones, such as austerity or the

privatization Privatization (also privatisation in British English) can mean several different things, most commonly referring to moving something from the public sector into the private sector. It is also sometimes used as a synonym for deregulation when ...

of key

public services A public service is any service intended to address specific needs pertaining to the aggregate members of a community. Public services are available to people within a government jurisdiction as provided directly through public sector agencies ...

, which may provoke strong political opposition in the recipient country. These conditionalities are often grouped under the label structural adjustment as they were prominent in the structural adjustment programs following the debt crisis of the 1980s.

Ex-ante vs. ex-post

Much debate in types of conditionality centers around ex-ante versus ex-post conditionality. In ex-post conditionality, the country receiving aid agrees to conditions set by the donor or lender that they will carry out ''after'' they receive the aid. Later follow-ups determine whether they might receive more aid. Ex-ante conditionality requires a country to meet certain conditions and prove it can maintain them ''before'' it will receive any aid. Traditionally, the IMF lends funds based on ex-post criteria, which might induce moral hazard behavior by the borrowing country. The moral hazard problem appears when a government behaves in a risky manner in the anticipation that it can turn to the IMF in the case of a crisis. Institutional reforms of the International Monetary Fund, such as the Flexible Credit Line (FCL) in 1999, attempt to reduce moral hazard by relying more on pre-set qualification criteria (i.e. ex-ante).Dreher, A. (2009)
"IMF Conditionality: Theory and Evidence"
Public Choice, 141, 233-267

'Tied' aid

Other types of conditionality that often occur are aid which is tied to be used in a specific way. For example, many countries tie aid to the purchasing of domestic products, although this practice has drastically decreased over the past 15 years. The

United Nations The United Nations (UN) is an intergovernmental organization whose stated purposes are to maintain international peace and security, develop friendly relations among nations, achieve international cooperation, and be a centre for harmoniz ...

Human Development Report in 2005 estimated that only about 8 per cent of bilateral aid is 'tied', down from 27 per cent in 1990. This however varies from country to country with the United Kingdom, Ireland and Norway giving 100 per cent of their aid untied, and Canada, Austria and Spain giving less than 60 per cent.
/sup>

European Union

The

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...

also employs conditionality with respect to enlargement, with membership conditional on candidate countries meeting the

Copenhagen criteria The Copenhagen criteria are the rules that define whether a country is eligible to join the European Union. The criteria require that a state has the institutions to preserve democratic governance and human rights, has a functioning marke ...

and adopting the

acquis communautaire The Community acquis or ''acquis communautaire'' (; ), sometimes called the EU acquis and often shortened to acquis, is the accumulated legislation, legal acts and court decisions that constitute the body of European Union law that came into b ...

References

External links

* World Bank conditionalit

* Conditionality in IMF-supported programs - overvie

* David Hall and Robin de la Motte, ''Dogmatic Development: Privatisation and conditionalities in six countries'', War on Wan

* "The Future of Aid Conditionality", Globalization Institut

Big Picture TV
{{Webarchive, url=https://web.archive.org/web/20160318214107/http://www.big-picture.tv/?id=3258 , date=2016-03-18 Free video clip of Martin Khor (Director, Third World Network) speaking about structural adjustment *

ActionAid ActionAid is an international non-governmental organization whose stated primary aim is to work against poverty and injustice worldwide. ActionAid is a federation of 45 country offices that works with communities, often via local partner organis ...

, April 2004
"Money talks: How aid conditions continue to drive utility privatisation in poor countries"
*

Eurodad Eurodad (European Network on Debt and Development) is a network of 53 non-governmental organisations and seven statutory allies from 29 European countries. Eurodad and its members make up a network, this network researches and works on issues tha ...

, November 2007

Untying the knots - How the World Bank is failing to deliver real change on conditionality * European Network on Debt and Development reports, news and links on conditionality

International development Anti-corruption measures